This page is a collection of reflections, contemplations, thoughts; about life, about death, about people, about stock markets, about science, about scientists, about economy, about economists, about art, about artists, about books and authors...

Saturday, September 27, 2014

This interview was first published in the IIB Bulletin, 2014, Vol. 1, Iss. 2, pp-4-5

https://iib.gov.in/IRDA/Articles/IIB%20Bulletin%20Q2%202014-15.pdf

Dr. Manalur S. Sandilya, the Appointed Actuary of the
largest private sector insurance company in India, ICICI Lombard General
Insurance Co. Ltd, and the Advising Actuary of the only Indian Reinsurer, GIC
Re, is associated with various Actuarial societies in different capacities. He
is also a member of the CFA Institute, published in refereed journals, been an
academician, worked in Reinsurance, held key positions in Insurance companies,
and is an appreciator of Carnatic music.

“The thought process
in insurance buying is very different in India”, says Sandilya, in a
conversation with Dr. Nupur Pavan Bang of the Insurance Information Bureau of
India, focusing on the property and casualty (P&C) insurance in India.

Why do you say that?
In what way is it different?

The basic issue is that people don’t understand insurance.
In an insurance jargon, it means, they don’t understand risk transfer.
They think of insurance premium as a savings account. If they put money in an
Insurance policy, they should get some money back. Some Life Insurance products
fit into that model, but in general P&C products do not.

In the West [Europe, US, UK], people essentially finance
long-term assets [motor car, house] with loans. The lien holder, for whom the
asset is the collateral, forces insurance on them. Until very recently, in
India, people were even buying houses with all cash. It is changing now. However,
the mindset needs to change. P&C insurance must be seen as a necessity.

How will the mindset
change? People see P&C insurance as an unnecessary expense. We all believe
that bad things only happen to others.

Insurance companies and/or IRDA [remember it has both
regulatory and development roles], need to educate the people about risk
transfer. And, risk transfer costs money. The best way to do it is to start
this at the school level. It has to be done thoroughly. In US and UK, kids
become aware of the need for insurance pretty early in life – they obtain
driver’s license and the necessary insurance cover on their parent’s insurance
at around 16 years of age.

Educating as such is not a big thing. But, given the size of
the country and the population, it becomes a humongous task. The way to drive
the point has to be convincing. We need to educate with perhaps examples. Say,
a natural catastrophe. When it happens, and it does happen often in India, it
will hit you tremendously.

While people need to
be made aware about risk transfer, how do the insurers themselves assess risk,
to accept or not accept a risk?

There is really not much underwriting happening in India.
It’s a broad paint-brush approach. Let’s take the case of Motor insurance. The
policy is sold at the point of sale. No individual characteristic is even
captured. On my return from abroad I was
surprised that one can obtain Motor TP cover without a driving license! In health, though some characteristics are
captured.

How can the industry
get out of this situation?

There are two problems. The first is on the supply side. We have
a shortage of trained Actuaries and underwriters. There is a serious dearth of trained
personnel. The second is related to the background of the business. 50-60% of
the market is controlled by the public sector undertakings (PSUs). The others
have to follow them in terms of pricing and underwriting. Unfortunately, the
PSUs simply base their prices on the erstwhile tariff advisory committee (TAC)
recommendations. The tariff regime is totally irrelevant now.

We expected that the new companies would focus more on
underwriting as they came in with foreign partnerships that had the expertise.
But they could not do it because of competitive pressures. There should be
government and regulatory direction to change the habits of the PSUs. Unless
they change their pricing strategy, the market will not change.

Apart from the
baggage of the background of the industry, are there other impediments to
meaningful underwriting?

Oh yes! Lack of relevant data for one makes a huge impact.
For example, in the motor insurance industry, when I am insuring a motor for
the Third Party cover, the primary risk comes from the driver. In India, we do
not capture any driver’s characteristics. Not even the name of the primary
driver. The entire industry keeps complaining about the lack of this data, but
nobody goes ahead and collects it. There has to be a regulatory imposition from
the top.

There is also a
cultural issue I suppose. The industry has not yet started exploring the
available data as well as the Insurance companies in the West do. Would you agree?

Yes and No. ICICI Lombard is analytics driven. I suppose a
lot of other companies also use the available data well. But you are right that
there is scope for improvement. For example, in Health, a lot of external data
is available, such as, the prior conditions that make people susceptible to
many critical illnesses. Integration of such data into our underwriting process
may not be happening.

You have worked in
Insurance and Reinsurance in the US and Europe. Is there something you would
like to convey to the budding Actuaries and Insurance professionals in India,
from your experience abroad?

Indian P&C industry is more than 100 years old, yet
actuaries and technical underwriters are relatively unknown in the
industry. The entry barriers are a great
challenge but I see an even greater opportunity. This is the place to be because they can and
should deliver so that the industry grows into a healthy pillar of the
economy. Risk reduction is one of the
foundation stones for sustained economic growth. I wish the youngsters all the best.

Friday, September 26, 2014

This article was first published in the IIB Bulletin, 2014, Vol. 1, Iss. 2, p13

https://iib.gov.in/IRDA/Articles/IIB%20Bulletin%20Q2%202014-15.pdf

“Professionalism must
come into the Underwriting Business”...

-Shri M. Ramaprasad,
Member (Non-Life), IRDA.

Underwriting is not an easy job
in India. Not just because of the skills and domain expertise required, also
because of the business environment. We surveyed 20 underwriters, from 16
different General Insurance companies in India about various practices and
aspects of underwriting in their companies.

Lack of Data for underwriting
purposes and to evaluate potential losses and lack of historical experience
emerged as the most important concerns of the underwriters. Most of the
companies have risk based underwriting prevalent in the organization; however,
the parameters needed to capture risk efficiently are not available in many
cases.

There have been significant
upgrades in technology across companies. Many of them have automated
underwriting systems being used. However, most of the underwriters also
expressed that the statistical techniques and technology being used for
underwriting in India is not at par with other developing nations.

A few underwriters expressed that
underwriting should be recognized as a core function by the CEOs. The tussle
between the top line (Revenues & volume) and the bottom line
(Profitability) while exists, the sales team and the underwriters are able to
strike a balance in most of the companies.

The regulator should do its bit by
promoting sound underwriting practices, providing flexibility in product
wording and specifying minimum required data that must be captured at the time
of sale of policy. Guideline rates would help in abetting irrational pricing
extant in the market for certain products.

Overall, the industry is moving in the right direction with respect to underwriting. There has been increased
focus on technology upgrades, realization of the need for more data capture,
storage and analysis and the move towards risk based pricing.

The New Business Premiums in the Life Insurance business
has witnessed a drop in premiums since the last few years due to uncertainties
and changes in regulations. Financial Year 2013-14 saw a revival in the total
New Business Premium. The Industry registered an overall growth of 11.5% on a
base of Rs. 119,641 Crores of Total Premium. LIC had a growth of 17.82% in NB
Premium during the year.

Over 83% of Current Year (FY13-14) Total Premium was from
the top three Insurance Companies: LIC, SBI Life and HDFC Standard.

The highest YOY-Percent Change is by Edelweiss Tokio
(69.85% on a base of Rs 80Crores current year total premium) while the lowest
YOY-Percent Change is at Star Union Dai-ichi (-24.43% on a base of Rs 563crores
current year total premium).

The size of the box indicates total premium received in crores (2013-14)
and the colour indicates YOY growth profit (red is low, green is high). Visuals
by Gramener.com

Top Current Year Total Premium (in
Crores)

Top YOY-Percent Change

Top Change YOY (in Crores)

LIC

90,124

Edelweiss Tokio

70.00%

LIC

13,636

SBI Life

5,067

Bharti Axa Life

51.00%

Reliance Life

557

HDFC Standard

4,037

Reliance Life

40.00%

IndiaFirst

365

ICICI Prudential

3,761

IndiaFirst

28.00%

Max LIFE

362

Bajaj Allianz

2,593

DLF Pramerica

26.00%

Bharti Axa Life

127

Bottom Current Year Total Premium (in
Crores)

Bottom YOY-Percent Change

Bottom ChangeYOY (in Crores)

Sahara Life

65

Star Union Dai-ichi

-24.40%

ICICI Prudential

-1,047

Edelweiss Tokio

80

Tata AIA

-22.50%

HDFC Standard

-399

Aegon Religare

147

ICICI Prudential

-21.80%

Bajaj Allianz

-395

DLF Pramerica

174

Met Life

-19.90%

Star Union Dai-ichi

-182

Future Generali Life

225

Aviva

-13.70%

Met Life

-167

Private sector Insurers as a whole hold 24.61% of the market
share of the Industry New Business Premium for the FY ending March 2014.

If we look at only private sector companies (leaving LIC
out), YOY Percent Change was -4% on a base of Rs. 29,517 Crores of Total Premium. Over 44% of Total Premium were from the top three Private Insurance
Companies : SBI Life, HDFC Standard and
ICICI Prudential.

The size of the box indicates total premium received in crores (2013-14)
and the colour indicates YOY growth profit (red is low, green is high). Visuals
by Gramener.com

Top Current Year Total Premium (in
Crores)

Top YOY-Percent Change

Top Change YOY (in Crores)

SBI Life

5,067

Edelweiss Tokio

70.00%

Reliance Life

557

HDFC Standard

4,037

Bharti Axa Life

51.00%

IndiaFirst

365

ICICI Prudential

3,761

Reliance Life

40.00%

Max LIFE

362

Bajaj Allianz

2,593

IndiaFirst

28.00%

Bharti Axa Life

127

Max LIFE

2,261

DLF Pramerica

26.00%

Kotak Mahindra Old Mutual

84

Bottom Current Year Total Premium (in
Crores)

Bottom YOY-Percent Change

Bottom ChangeYOY (in Crores)

Sahara Life

65

Star Union Dai-ichi

-24.40%

ICICI Prudential

-1047

Edelweiss Tokio

80

Tata AIA

-22.50%

HDFC Standard

-399

Aegon Religare

147

ICICI Prudential

-21.80%

Bajaj Allianz

-395

DLF Pramerica

174

Met Life

-19.90%

Star Union Dai-ichi

-182

Future Generali Life

225

Aviva

-13.70%

Met Life

-167

If we look at category wise growth in New Business
Premiums, the Individual Non-single premium (INSP) which is critical for
long-term sustainability dropped by 3.96% for the Industry. Strangely, LIC's
drop was more at 4.56%, as compared to the private sector which took a dip of
3.01%.

The highest YOY-Percent Change is at Group Single Premium
(31.46% on a base of Rs. 50,448 crores Total Premium) increasing the share of
this portfolio from 42% in FY2012-13 to 49% in FY 2013-14.

The size of the box indicates total premium received in crores (2013-14)
and the colour indicates YOY growth profit (red is low, green is high). Visuals
by Gramener.com